Global Stock Markets Drop Amid US Economic Worries

European stock markets fell sharply on Monday, following big drops in Asia, as fears grow that the US economy is slowing down. In London, the FTSE 100 index fell by 2.8%, Paris’ CAC-40 dropped by 2.5%, and Frankfurt’s DAX slid by 3.2%.

Earlier, Asian markets saw huge losses, with Japan’s Nikkei 225 plunging 12.4% or 4,451 points, the biggest point drop in its history. This happened after weak US jobs data on Friday raised concerns about the health of the world’s largest economy.

Adding to the market turmoil, the yen has strengthened against the US dollar since the Bank of Japan raised interest rates last week, making Japanese stocks more expensive for foreign investors. As a result, stock markets in Taiwan, South Korea, India, Australia, Hong Kong, and Shanghai also saw significant declines.

The disappointing US economic data has led to speculation that the economy is slowing. Compounding these fears, the US Federal Reserve chose not to cut interest rates last week, unlike other central banks such as the Bank of England.

While the Bank of England’s first interest rate cut in over four years is seen as a positive sign for the UK economy, concerns about the US economy have unsettled global markets.

There is also anxiety that shares in technology companies, especially those involved in artificial intelligence (AI), may have been overvalued. Intel announced major layoffs and disappointing financial results last week, and there is speculation that Nvidia, a leading AI chip maker, might delay its latest product launch.

The US Nasdaq index, which includes many technology firms, hit a record high last month but fell around 10% last week in a “correction.” Additionally, Warren Buffett’s firm Berkshire Hathaway revealed it had sold about half its stake in Apple.

The Dow Jones Industrial Average dropped 1.5% on Friday, and the S&P 500 ended 1.8% lower.

Too Much Worry?

Tomochika Kitaoka, chief equity strategist at Nomura Securities, said worries about a US economic slowdown might be “too much.” However, he noted that the Japanese market turned nervous after the Bank of Japan’s rate hike, questioning whether the domestic economy was strong enough to justify the increase.

Unlike other central banks, the Bank of Japan raised interest rates last week to the highest level since the global financial crisis in 2008. In June, inflation in Japan rose more than expected, and the economy shrank in the first quarter due to a weaker yen and poor household spending. The Japanese currency has strengthened more than 10% against the US dollar over the last month, making Japanese goods more expensive and less attractive to overseas buyers.

Elsewhere in the Asia-Pacific region, stock markets fell between 1.4% and 8%. Cryptocurrencies also declined, with Bitcoin dropping to around $50,000, its lowest level since February.

Unemployment Concerns

Friday’s sharp fall in US stock prices was triggered by weak jobs data. In July, US employers added 114,000 jobs, far fewer than expected, and the unemployment rate increased from 4.1% to 4.3%. These figures raised concerns that the long-running jobs boom in the US might be ending and fueled speculation about when and by how much the Federal Reserve might cut interest rates.

Simon French, chief economist and head of research at Panmure Liberum, noted it was unclear if the jobs figures were an anomaly due to Hurricane Beryl in July or the first sign that companies are hiring fewer workers.

The most recent data showed the US economy grew at an annual rate of 2.8%. Shanti Kelemen, chief investment officer at M&G Wealth, told the BBC’s Today programme that the direction of the US economy remains uncertain.

“You can pick out evidence to create a positive story, you can also pick out the evidence to create a negative story,” she said. “I don’t think it universally points to one direction yet.”